BUSINESS ETHICS

Photo by: Aaron Amat

Ethics is the field of philosophy that studies systems, norms, or values
that distinguish between what is good and bad or right and wrong. The
field of business ethics focuses on examining conduct and policies and
promoting appropriate conduct and policies within the context of
commercial enterprise, both at the individual and the organizational
level. Business ethics is a form of applied ethics where researchers and
professionals use theories and principles to solve ethical problems
related to business. Consequently, a central question of business ethics
is "How do businesses determine what is appropriate or ethical
conduct for any given commercial task?" Business ethics covers all
levels of business activity, including the obligations and
responsibilities of businesses to customers, employees, other businesses,
national and multinational governments, and the environment.

As with other aspects of society relevant to ethics, conventions and
folkways dictate the ethics of some kinds of business activities, while
local, state, and federal laws regulate other kinds of activities. The
latter kinds sometimes are referred to as institutionalized business
ethics, which include laws covering
warranties, product safety, contracts,
pricing, and so forth. Furthermore, a number of corporations and
professions contributed to the institutionalization of business ethics by
establishing codes of ethics.

As in the broad field of ethics, many theories and approaches to business
ethics exist. Business professionals and ethicists explore the field of
business ethics in three common ways: (1) by studying the (often
conflicting) views of famous philosophers, (2) by identifying major
ethical concerns of businesses and proposing solutions to them through
legislation or ethical theory, and (3) by examining case studies that shed
light on ethical dilemmas.

The concept of business ethics is relatively new, having become an issue
and an organized field of study only since the 1970s. Although numerous
factors have contributed to the increased interest in business ethics, a
chief influence has been a shift in societal values that underlie the
business system. The change in American values has been characterized, in
general, by a move away from traditional Judeo-Christian ethics toward
pluralism, relativism, and self-fulfillment. The end result has been a
diminished base
of universal moral norms and a subsequent interest in, and concern about,
resolving ethical conflict. Understanding the evolution of morality in the
United States is crucial to the study of business ethics.

Derived from the views of Protestants John Calvin (1509-1564) and Martin
Luther (1483-1546), the Protestant work ethic that was imported from
Europe to North America during the 17th, 18th, and early 19th centuries
was a set of beliefs that encompassed secular asceticism—the
disciplined suppression of gratification in favor of ceaseless work in a
worldly calling according to God's will. This work ethic emphasized
hard work, self-reliance, frugality, rational planning, and delayed
gratification that formed the foundation of modern
capitalism
and allowed American and European societies to accumulate economic
capital. The Protestant work ethic dominated white American society
through the 1800s.

This ethic aided in the emergence of an upwardly mobile bourgeois
class—comprised of successful farmers, industrialists, and
craftsmen—that was preoccupied with social conformity and
materialism. At the same time, a much clearer definition of success and
failure developed that was wrapped up in material terms; this definition
would play a major role in the societal evolution of the Western world.

A significant factor that contributed to the decline of the Protestant
work ethic was the accumulation of wealth, which gradually diminished the
religious basis of the ethic. As workers increased their wealth,
consumption gradually became the motivation for work, replacing the
work-for-work's-sake foundation of the Protestant work ethic. In
the growing cities, the religious component, which included frugality, was
jettisoned in favor of the conspicuous consumption of a consumer society
as people began producing more than they could consume and marketing their
products to others to avoid waste.

As the original Protestant work ethic gave way to a "success
ethic," other factors contributed to a change in moral norms during
the latter half of the 20th century. The demographic makeup of the United
States changed as large numbers of non-Protestants immigrated and joined
the
workforce.
They brought with them different value systems and confronted the
society's Protestant bias. In addition, many Americans rebelled
against what they viewed as suppressive social norms that had carried over
from Protestant asceticism. Those norms were replaced by a belief in
individualism and relativism—which holds that any
individual's or group's values are as good as any
other's. As a result, a societal bias against universal norms of
behavior developed. Such beliefs carried over into views about
business-related conduct.

The new morality underlying business behavior in the United States was
characterized by an emphasis on salary and status, self-fulfillment,
entitlement, impatience, and consumption, and an attitude that the ends
justify the means (or it is all right to break the law to achieve your
goal as long as you do not get caught). Proponents of the new morality
point out that it has resulted in the most productive economy and living
standard in the history of the world. Critics argue that the lack of moral
norms has created havoc in the business world (and society) that threatens
long-term economic stability. They cite destructive business behavior,
such as the dumping of hazardous wastes and the exploits of corrupt
financiers.

In addition to ethical issues arising out of changing norms and
contrasting social theories, ethical dilemmas plague everyone, even
individuals who are honest and confident in their moral stance. Conflicts
result from day-to-day business decisions that are intrinsically
influenced by factors such as loyalty. For example, in choosing a course
of action, individuals must ask themselves whom they are serving with
their decisions: society, the corporation, their God, themselves, their
family, or some other entity. Saul W. Gellerman, in his essay "Why
'Good' Managers Make Bad Choices" in
The Business of Ethics and the Ethics of Business,
identified four common rationalizations that lead to unethical business
behavior by well-intentioned managers.

One reason often cited for engaging in immoral behavior is that the
activity seemed to fall within reasonably acceptable moral bounds; because
everybody else was doing it, it was not "really" illegal or
unethical. A second rationalization was that the unethical act was
performed in the interest of the corporation; perhaps the company even
expected or ordered the violator to perform the act, possibly with the
threat of reprisal for inaction. A third reason was that the offender
believed that the conduct was safe because it would never be
discovered—because the risk of getting caught was so low, it was
okay to commit the act. Fourthly, offenses are carried out because the
company condones the behavior, minimizes its impropriety, and assures
protection for those who engage in it.

In fact, employees often do have a motivation to engage in technically
unethical behavior for their corporations. Studies have indicated that
whistle-blowing, or divulging unethical corporate behavior, is generally
frowned upon by American society. Pressure from fellow employees,
managers, and even the local community can cause an employee to continue
even
highly unethical behavior, in the interest of being a team player and not
being labeled a tattletale.

The intensified interest in business ethics, particularly during the 1980s
and 1990s, was partly the result of diverging moral norms and a perceived
decay of self-regulation and honesty. Paradoxically, however, it is the
accompanying bias against moral norms that makes the study of business
ethics so imprecise. Because all philosophies relating to ethics are
generally assumed to have merit (i.e., none is right or wrong), most
treatises and educational programs on the subject do not advocate a
philosophy. Instead, they offer contrasting views for contemplation, such
as those outlined below.

ALBERT CARR.

The 20th century thinker Albert Carr believes that ethics do not
necessarily belong in business; they are a personal matter. The business
world might contain a set of rules for participants to follow, but those
have nothing to do with the morals of private life. Business, Carr
asserts, is really more like a poker game, the purpose of which is to win
within the context of the rules. Cunning, deception, distrust, concealment
of strengths and strategies—these are all parts of the game.
Businesspeople cease to be citizens when they are at work. Furthermore, no
one should criticize the rules of the game simply because they differ from
societal morals.

Carr's basic views on ethics in business are recognized for the
insight they provide into the dynamics of a free and competitive market.
Critics point out that he views business ethics very narrowly, simply as a
set of rules created by the government and the courts that must be obeyed.
He assumes that one's role as a businessperson takes precedence
over one's other societal roles. But, if one's personal
morals conflict with business rules, should one have to compromise
one's personal beliefs?

Further study of Carr's views reveals a bent toward ethical
relativism, which supports his view that we should not criticize rules of
business, even if they conflict with our personal ethics. A positive
aspect of relativism is that it cultivates tolerance of other people and
groups (after all, who is qualified to determine what the social norms
should be for everyone?). But it also raises questions about ethical
conduct. For example, is it okay to accept a bribe to award a contract in
a country where that practice is accepted? Were the Nazis correct in their
beliefs simply because others did not have a right to judge them?

MILTON FRIEDMAN (1912-).

Milton Friedman advocates the classical theory of business, which
essentially holds that businesses should be solely devoted to increasing
profits as long as they engage in open and free competition devoid of
fraud. Managers and employees, then, have a responsibility to serve the
company they work for by striving to make money for it. The very act of
seeking profits is, according to Friedman, a moral act. An extreme example
relates his point: If a person invested all of his or her savings into a
venture and then the company gave away the money to the homeless, would
that be ethical? No, proffers the classical theory, because the investor
gave the money to the company in good faith for the purpose of earning a
profit.

ADAM SMITH (1723-1790).

Friedman's views generally support those of Adam Smith, who held
that the best economic system for society would be one that recognized
individual self-interest. That concept seems to conflict with the
classical theory of business ethics. In his renowned
Inquiry into the Nature and Causes of the Wealth of Nations
(1776), however, Smith stated that society is best served when each
person pursues his own best interests; an "invisible" hand
will ensure that self-interested behavior serves the common social good.
The competition that would result between individuals would be played out
within the confines of government regulations.

Smith's invisible hand concept is based on the theory of
psychological egoism, which holds that individuals will do a better job of
looking after their own interests than those of others. A tenet of that
theory is that enlightened egoists will recognize that socially
responsible behavior will benefit them.

Both psychological egoism and the classical theory can be defended by the
utilitarian argument. Utilitarianism maintains that any action or system
is good if it results in the greatest good for the greatest number of
people. In summary, if, as Smith contended, self-interest is a chief
motivator and the invisible hand really works, then as companies seek to
maximize profits, the greatest public good will result for the greatest
number.

Critics of Smith's and Friedman's theories contend that they
neglect the need for cooperation and teamwork in society, and that chaos
can be avoided only with heavy policing of self-interested behavior.
Proponents of the invisible hand counter that individuals will usually
pursue cooperation and self regulation because it is in their own
interest.

JOHN LOCKE (1632-1704).

Although perhaps best known for his advocacy of life, liberty, and
property during the 17th century, John Locke is credited with outlining
the system of free enterprise and incorporation that has become the legal
basis for American business. His philosophy was founded on a belief in
property rights, which are earned through work and can be transferred to
other people only at the will of the owner. Under Locke's theory,
which now seems intuitive because of its commonality, workers agree
by their own will to work for a company for a wage. Shareholders receive
the profits because they have risked their property. Thus, it is the
responsibility of the company's workers to pursue profits.

Opponents of Locke's system, particularly proponents of socialism,
argue that property rights are not inalienable. For that reason,
Locke-style capitalism is morally unacceptable because it prohibits the
public from benefiting from property that actually belongs to everyone.
Indeed, according to socialists, the right to profits is not assumed
because the profits emanate from the surplus value created by the work of
the entrepreneur and laborer. In fact, property ownership itself is
unethical. It is merely an attempt by powerful owners to keep control of
their property and to exploit other people.

To their credit, socialist and Marxist systems do lead to less inequality.
Utilitarians, however, would counter that those more equitable systems do
not produce the greatest good for the greatest number.

IMMANUEL KANT (1724-1804).

The German philosopher Immanuel Kant believed that morality in all spheres
of human life should be grounded in reason. His renowned
"categorical imperative" held that: (1) people should act
only according to maxims that they would be willing to see become
universal norms (i.e., the Golden Rule); and (2) people should never treat
another human as a means to an end. The categorical imperative is easily
demonstrated: It would be unethical for a person to break into a long line
at a theater, because if everyone did the same thing anarchy would result.
Similarly, it would be immoral for a person to have a friend buy him or
her a ticket under the agreement that he or she would reimburse the
friend, but then fail to pay the friend back.

Kant's theory implied the necessity of trust, adherence to rules,
and keeping promises (e.g., contracts). When people elect to deviate from
the categorical imperative, they risk being punished by the business
community or by government enforcement of laws. More importantly, Kant
suggested that certain moral norms that are ingrained in humans allow them
to rise above purely animalistic behavior. People have the capacity to
forgo personal gain when it is achieved at the expense of others, and they
can make a choice as to whether they will or will not follow universal
norms.

In the late 1980s, the Conference Board published a report that surveyed
about 300 corporate executives from around the world. The report indicated
the primary ethical concerns of businesses fell into four categories:
equity, rights, honesty, and the exercise of corporate power, each of
which is addressed below.

Equity—referring to general fairness—includes the disparity
between executive/manager salaries and entry-level worker salaries. The
ethical question here is whether it is fair to pay executives over 30
times more than entry-level workers earn. Researchers of business ethics
such as Peter Drucker (1909-) propose that companies ensure fair
compensation by limiting executive compensation to just 10 times what
entry-level workers earn. In addition, fair product pricing also falls
into this category.

The category of rights covers entitlements of employees, customers,
communities, and other parties as established by laws, court rulings, and
social conventions. Rights generally protect these various parties from
activities by businesses that can limit their freedom and safety. This
rubric also subsumes issues such as sexual harassment, discrimination, and
employee privacy.

Honesty, the broadest category, refers to the truthfulness and integrity
of businesses' actions and policies, including corporate conduct as
well as employee conduct done in the name of the company. Furthermore,
issues of honesty pertain to advertising content, financial procedures,
bribes and gifts, fraud, and wastefulness. In addition, honesty also
includes employee obligations, such as not disclosing confidential
information to a company's competitors.

The key issue surrounding exercise of corporate power is whether companies
ethically can fund and support certain political action committees whose
efforts may benefit their businesses but cause social harm. This category
also covers worker, product, and environmental safety concerns and raises
questions about employers' responsibilities for workplace equipment
that may cause injuries after prolonged use, products that may harm
consumers, and conduct and products that may contaminate the environment.

Ethical violations at the Manville Corporation (formerly called Johns
Manville), a manufacturer of asbestos, reflect the many dynamics that
influence immoral behavior in large organizations. In the 1940s the
company's medical department began to receive information that
indicated asbestos inhalation was the potential cause of a debilitating
lung disease. Manville' s managers suppressed further research and
elected to conceal the information from at-risk employees, even going so
far as refusing to allow them to view chest X-rays. The company's
medical staff also participated in the cover-up.

After more than 40 years of suppressing this secret, Manville was exposed
and was forced to turn
over 80 percent of its equity to a
trust
that would pay benefits to affected workers and their families. An
important point of the case is that many employees—mostly ordinary
men and women—participated in the cover up, with reasons ranging
from company loyalty to fear of job loss. Rather than hurt the company or
damage their career, executives and managers chose to remain silent and
conceal data.

A similar incident occurred in the 1980s at E. F. Hutton & Company,
a brokerage that pleaded guilty to more than 2,000 counts of mail and wire
fraud. The company stole money from 400 of its
banks
by drawing against uncollected funds or nonexistent sums. It would return
the money into the accounts after it had used it—interest free.
Like Manville's cover-up, the E. F. Hutton conspiracy involved many
managers over a period of several months. The company encouraged its
branch managers to illegally borrow from the accounts, suggesting to them
that the practice was savvy business rather than a violation of law or
ethics. In some instances, E. F. Hutton even rewarded managers for their
skill at utilizing the funds. The managers were likely influenced by the
perception that everyone else was doing it and that the company would
protect them in the unlikely event that they were caught. In the end,
several managers were fired and/or indicted. E. F. Hutton agreed to pay
between $3 million and $11 million in damages, and its reputation in the
financial community was damaged.

An ongoing ethical dilemma in the business world involves the tobacco
industry. Critics of cigarette companies argue that, despite abundant
evidence that smoking is a health hazard responsible for millions of
deaths, manufacturers continue to produce and sell the deadly goods. The
cigarette manufacturers counter that their product embodies a heritage of
smoking that dates back several centuries. They also argue that data
linking smoking to cancer and other ailments are lacking. Cigarette makers
continue to advertise their products using positive, alluring images, and
to play down the potential health risks of smoking. As with most business
ethics dilemmas, rationalization and the lack of a clear-cut solution
cloud the issue.